Opening Remarks by ADB Vice-President Stephen P. Groff on 5 May 2013 at the ADBI Seminar on Connecting South Asia and Southeast Asia.

Introduction

Ladies and gentlemen, it is my pleasure to welcome you to this seminar on Connecting South Asia and Southeast Asia, which will report on the progress of the joint ADB–ADBI study on this topic. Over the past decade, Southeast Asia and South Asia were two of the fastest growing regions in the world with annual average growth rates of 5.5% and 7.6%, respectively. Nevertheless, economic integration between the two regions remains low. It is particularly low in comparison with what has already been achieved between Southeast and East Asia, where the development of production networks has been a driving force. The purpose of the joint study is to identify policies and strategies to enhance connectivity between these two subregions. In particular, the study aims to identify new opportunities for connectivity between the two subregions associated with the opening up of Myanmar.

Benefits of greater connectivity between two subregions

There are numerous potential benefits of closer connectivity and economic cooperation between the two subregions:

First, when cooperation leads to greater integration, the consequent expansion of the market for goods and services increases the scope for economies of scale and greater competition.

Second, it provides greater opportunities for expansion of production networks to countries with comparatively low wages but inadequate connectivity. In particular, greater involvement of South Asian countries and less developed ASEAN countries in production networks could have a galvanizing effect on manufacturing development in those countries.

Third, a more integrated region could attract more FDI with its attendant benefits of technology and knowledge transfer, and higher productivity.

Fourth, regional cooperation agreements enable deeper and wider trade integration among member countries than what may be feasible within a multilateral framework. Cooperation on infrastructure and trade facilitation (for example transport, customs clearance, and product standards) and services (such as financial services and labor services) would likely lead to reduction in trade costs and result in welfare gains well in excess of gains from tariff liberalization.

In Asia, we see enormous requirements for infrastructure. The report by ADB and ADBI entitled “Infrastructure for a Seamless Asia” forecasts that over $750 billion would be needed for infrastructure investment every year over the next ten years in Asia. Transport is a major part of such infrastructure investment needs. Without appropriate and adequate transport, countless millions of people lack access to jobs, markets, hospitals and schools. Promoting the development and integration of regional financial markets will facilitate directing the region's high savings toward investment projects with the greatest benefits. Regional funds such as the ASEAN Infrastructure Fund can also play an important role in financing such projects.

Fifth, there are potential gains from greater integration of existing regional institutions. More integrated subregional groupings could serve as a platform for developing larger and more resilient economic corridors, anchored by cross border infrastructure projects.

Finally, greater connectivity can provide the basis for more inclusive growth with greater potential for reducing poverty and closing development gaps. This includes minority groups that have been marginalized in the past, which often led to conflict. Such developments could have broader benefits of enhancing peace and security in the region, including aspects related to water supply, labor mobility and possibly defense.

Implications of opening up of Myanmar

By virtue of its strategic location straddling South Asia and Southeast Asia, the recent opening up of Myanmar in political and economic areas presents a significant new opportunity for enhancing these integration efforts, with the promise of substantial gains for both regions. This is particularly the case for land-based transportation—both highways and railroads—and energy, but also for new land-sea links. The potential gains include contributing to processes of political reconciliation in the region.

Costs of integration need to be addressed

To be sure, increased economic integration may not result in equal distribution of benefits, both across countries and industries and within countries, with implications for income distribution. The risk of environmental degradation and excessive energy consumption may increase. The potential occurrence of these undesirable side effects needs to be assessed, and offsetting measures adopted. Indeed, ADB's subregional programs are already providing support on this front.

Conclusion

Ladies and gentlemen, ADB and the ADBI have been engaged in supporting increased connectivity in the region, and stand ready to assist developing member countries in moving forward in this area. Let us use this connectivity project as an opportunity to find solutions to our common challenges. Let us build integrated hard and soft infrastructures to promote more inclusive and sustainable trade and investment in Asia, and beyond.

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